As the northern hemisphere summer draws to a close, three new emerging global crises threaten to dominate the rest of the year.
1) In the Middle East Bashar Assad's likely use of chemical weapons on his own citizens is certain to draw a military response from the West. Despite talk of a surgical strike and limited intervention, time and again over hundreds of years the Middle East has shown itself to be a quagmire, capable of embroiling even its most reluctant invader.
The Syrian morass pitches the United States against Russia and Iran. This local war easily could become a proxy for indirect military conflict between larger global powers, as happened so often during The Cold War. Western countries have a firm habit of becoming deeply embroiled in local Middle Eastern conflicts. The markets are aware of this and the price of oil (and other commodities) has started to respond accordingly.
2) While the markets may be clear about the impact of a Syrian strike, they are pretty much clueless as to where the ongoing rout in emerging markets will end up. Currencies of many important developing markets are in free fall as the market responds to the forthcoming "tapering" of money printing in the United States and with it the return of higher U.S. interest rates.
As the U.S. dollar becomes more attractive to investors, the flood of money exiting major emerging markets is threatening to become a deluge and may cause massive currency depreciation in emerging market economies, which now make up half the world economy (including India, Turkey, Thailand, Indonesia, South Africa and Brazil).
The real fear here is that the Federal Reserve is embarking on its new course of monetary action without really understanding the impact it will have on the global economy, including in the United States. If major economies such as India and Brazil suffer a substantial economic meltdown they will be forced to defend their currencies by dumping U.S. dollars and buying up Indian rupees, Brazilian reals and South African rands.
They will do this by selling the huge amount of U.S. debt they own, forcing up the price of U.S. Treasury bills and threatening to snuff out America's solid economic recovery. The United States no longer lives in a global economic vacuum.
For the BRIC countries themselves the days of easy credit caused by rock bottom Western interest rates are over and we all know what that did to peripheral European economies once the tap was turned off of their decade long debt binge.
3) That brings to the third crisis, the Eurozone, where last week the German finance minister admitted what many have long already known: That Greece will need a third bailout soon. Nothing will happen until Prime Minister Angela Merkel is safely re-elected in short order, but following this, depending on the extent of global turbulence from emerging markets, we can expect to see Greece request another haircut of its debt, to bring it down to a level they have some hope of repaying (perhaps 120% of GDP).
The crucial difference is that money written off will be, for the first time, cash provided by Germany a couple of years ago to bail the country out. This will be the first time the German taxpayer has taken a direct hit for keeping the Eurozone together. Many Germans will have realized that the money they "lent" to Greece over the last three years would never be re-paid. These loans being written off will be confirmation that their money is gone and will be hard for many Germans to take.
Even though I write this from a beautiful Mallorca beach where the Mediterranean resorts are full and the tourist towns heaving, large parts of the Eurozone's peripheral economy are unreformed and only tentatively emerging from two years of recession. If the third Greek bailout is not carefully managed, it could lead to a wider crisis across the Eurozone (particularly in Cyprus or Italy), and which will likely take place against military action in Syria and a tense period in the global economic environment.
It is going to be an interesting final few months to the year.